A Tax Withholdings Case Study

Last month I had the opportunity to counsel one of my good friends and her husband with their finances.  Upon getting their numbers, one of the first thing I noticed was the very large gap in what I remember her telling me their approximate gross income was and what their take home pay actually ended up being.  Upon further investigation, we discovered that they had been over withholding their taxes by having way too few exemptions.  The result was that for the last several years they have been receiving an average $6-8K tax refund.  I had them adjust the number of exemptions they were claiming on their W-4 and we found an extra $400+ per month to bring home.  That's an extra $4800/year that they really need and that's not being loaned to the government interest free.  I can't tell you the relief that washed over them when they realized they weren't as bad off as they thought.  They were also appalled that they hadn't caught the discrepancy sooner.  They were caught in a vicious cycle of running up debt throughout the year only to try to knock some of it down when the tax refund came in.  Now they are thrilled to have one last big return and have a plan for that money to end the chaos.  Please take a lesson from this real-life example! Make the changes necessary today to take control of your financial destiny.